European whole-life costs

Where is the most cost-effective
European location for a building? The answer depends on the use the building will be put to, the cost of its construction and the cost of ownership over its lifetime. Using whole-life costs is the most effective way of evaluating the alternatives and identifying the best value way to design, erect and operate a facility.

Construction costs
To enable a comparison to be made between European countries, Franklin + Andrews has compared costs for a generic 2250 m2 factory. To simplify the comparison, the costs of compliance with local building regulations have not been taken into account. Likewise, variations in land acquisition costs, capital allowances, finance costs and taxes have been excluded from the analysis.

To build on the success of last year's study, the cost research unit of Franklin + Andrews has increased the depth of research undertaken to compile the analysis of whole-life costs throughout Europe. The tables below contain a significantly increased sample size and range of projects from last year's study, published on 30 May 2003.

Other than the Scandinavian countries, the UK is one of the most expensive places to build in Europe in 2004 due in part to higher building labour costs and in many cases lower productivity rates. Belgium, Italy and Greece all recorded the lowest levels of construction capital cost, running at about 80% of the UK's. Sweden still records one of the highest construction cost levels at 123% of that recorded in the UK.

Ownership costs
Energy use and maintenance are the two key ownership costs. The study assumed typical energy usage and an identical maintenance regime in each country.

UK maintenance costs are the highest in Europe because of the higher cost of labour, with most other countries recording a cost reduction of between 25 and 50%.

British labourers are the highest paid. A Hungarian or Polish labourer makes 13% of a British labourer's wage. A German makes less than half

M&E maintenance costs recorded closer results, with Luxembourg reaching levels in some cases of 60% more than in the UK. Italy recorded the lowest, where the typical wage of an engineer is €14,700, compared with €27,500 in the UK.

The cost of energy and utilities fluctuates dramatically between the European countries. The cost of electricity is significantly higher in Austria than elsewhere in Europe, whereas Sweden, Luxembourg and Finland all have electricity costs amounting to about half that of the UK.
After Austria, Germany and Ireland, the UK recorded the fourth lowest levels of water charges in the study.

Communication costs also varied dramatically over the countries surveyed. Austria, in particular recorded telephone charges in excess of two times that of the UK. Luxembourg has line rental charges of more than double the UK's but the average cost per call is about half.

Labour costs and productivity
A significant factor in the cost of running a building is the cost and performance of labour. The impact of labour will depend on the type of activity it is performing: for example cleaning, porterage and security costs will all reflect labour costs and productivity to a far greater extent than communication costs. The labour performance factor table (right) illustrates productivity across Europe. The figures were compiled from an analysis of three independent studies of labour-intensive activity across Europe, taking into account a broad spread of factors such as working environment, climate, skills and applied training. The average figures from all three studies were applied here.

The figures give labour performance relative to the UK, which has a factor of 1.00.

German workers are the most productive in Europe, Czech workers are the least productive, Italy is the cheapest place to build the factory for a 25-year occupancy - Greece is the cheapest for 15 years. Sweden is the most expensive

The most efficient and productive country of those studied is Germany, closely followed by Belgium. Both recorded productivity gains of 15 to 20% over the UK. Countries such as the Czech Republic and Greece are significantly less productive with factors of 1.30 and 1.25 respectively.

The labour performance factor read in conjunction with the average salary gives an indication of which countries are most economic for labour-intensive activity.

Time and usage factors
For this study, the whole-life costs of the building were considered over a 25-year occupancy period. However, the period of ownership will cause significant changes to a manufacturing plant's whole-life cost since the cost of occupancy over the lifetime of a building is generally far greater than the initial cost of construction. Therefore, when deciding where to locate a facility, it is important to consider how long the facility will be required. For example, if we reduce the operational life of the building to 10 years, Greece undercuts Italy to become the cheapest country to build and operate the building.

And considered all together …
If a manufacturer is considering constructing and running a factory in Europe over a 25-year period, three countries that would appear to be the most attractive are Greece, Italy and Portugal. All three countries record a 30 to 40% reduction from typical costs in the UK. The most expensive place to build and run the facility is Sweden where it would cost 15% more over a 25-year period.